American Consumer Real After-Tax Disposable Income Has Biggest Drop in 20 Years!

By Michael Lombardi, MBA Published : March 6, 2013

When it comes to looking at the economic growth of a nation, most economists look at indicators such as the unemployment rate, consumer spending, business conditions, and growth in gross domestic product (GDP).

Ironically, as the stock market moves to new highs, all these key indicators of economic growth are painting a scary picture of the U.S. economy.

As I have been harping on about in these pages for far too long now, the unemployment situation in the U.S. economy is a big hurdle to overcome on the way to economic growth. There are millions of Americans still unemployed and looking for jobs—more job seekers than job openings. In real economic growth, you don’t have this scenario.

Similarly, consumer spending, hands down the biggest contributor of economic growth in the U.S. economy, looks to be tumbling. In January, the disposable income of households in the U.S. economy, after taking into consideration inflation and taxes, dropped four percent—the biggest single-month drop in 20 years! If consumers in the U.S. economy don’t have money to spend, then economic growth becomes questionable.

As for business conditions, they appear bright only if you look at the stock market. In reality, they are deteriorating in the U.S. economy. For the first quarter of 2013, the expectations of corporate earnings of companies in the S&P 500 have turned negative. Corporate earnings were negative in the third quarter of 2012, too.

According to FactSet, so far, 105 companies in the S&P 500 have issued guidance for their corporate earnings for the first quarter of 2013. Of these 105 companies, 77% provided a negative outlook. If the percentage of companies with a negative corporate earnings outlook stays at this level, it would be the highest number of companies providing negative outlooks since the first quarter of 2006. (Source: FactSet, February 28, 2013.)

In its initial release, the Bureau of Economic Analysis reported that the fourth-quarter GDP adjusted for inflation in the U.S. economy contracted for the first time in 3.5 years. Its second estimate showed a miniscule increase of 0.1%. (Source: Bureau of Economic Analysis, February 28, 2013.)

With all this said, let me ask you this question: how can we have economic growth in the U.S. economy when economic indicators are showing the opposite?

The sad reality is that there’s no economic growth in the U.S. economy.

What He Said:

“Anyway you look at it; the U.S. housing market is in for a real beating. As I have written before, in the late 1920s, the real estate market crashed first, the stock market second and the economy third. This is the exact sequence of events I believe we are witnessing 80 years later.” Michael Lombardi in Profit Confidential, August 27, 2007. A dire prediction that came true.